The Rise of the Underclass

If you are a working-age adult who is stuck in a low-wage job, or have no job at all, then you belong to the largest segment of the American labor force: a vast, sprawling underclass, with little, if any, economic value to the society that it burdens. Despite the ongoing monthly celebration of job growth, the number of working-age adults without a job is increasing rapidly and the jobs being created are, for the most part, of the subsistence variety, driving tens of millions of Americans into the lower reaches of the labor force.

During the recession that began in December 2007, 8.2 million American jobs were lost, 60% of which were middle-class jobs. The rest of the decline was split evenly among high-wage and low-wage jobs. Today, more than seven years later, the number of high-wage jobs has finally returned to its pre-recession level. But most of the middle-class jobs have not returned. They are being crowded out by low-wage jobs, largely the result of a stagnant economy, automation, and an enormous labor surplus.

The overwhelming majority of jobs are found in the two lowest wage earner quintiles. The bottom quintile, Q1, is 91.2 million strong, with an average income of $14,600; Q2 is 29.8 million strong, with an average income of $45,100. The other three quintiles, which I will call middle class (Q3), upper middle class (Q4), and upper class (Q5), include 19.1 million, 11.7 million, and 4.0 million, respectively, with average incomes of $70,100, $115,000, and $335,000. These three quintiles, which total only 34.8 million, have all the good jobs. The 121 million workers in the bottom two quintiles have the lousy ones.

Writing in the New York Times, Annie Lowrey reports that "the poor economy has replaced good jobs with bad ones." Most of the job growth has been in retail trade, administrative and waste services, and leisure and hospitality — the lowest paying sectors of the economy. Lowrey cited a National Employment Law Project analysis, which found that "fast food is driving the bulk of the job growth at the low end." To David Stockman, former Reagan budget director, the recovery has created a "Bread and Circuses" economy; he is not alone. To experts such as author and investment banker Daniel Alpert, it is a burger-flipper economy; "we have become a nation of hamburger flippers, Wal-Mart sales associates, barmaids, checkout people and other people working at very low wages.” Or, as Pulitzer Prize winning economics journalist Mark Whitehouse ("A Nation of Temps and Burger Flippers?") found, temporary burger flippers.

At least the burger flippers have jobs. With today's labor force participation (LFP) the lowest it's been in 37 years, there are 93 million working-age (16 years of age or older) adults who don't. This isn't to say that there are 93 million American who need jobs. Most retirees don't need them, and the Bureau of Labor Statistics cites "the aging of the baby boomer cohort" as the number one cause for the LFP decline. But in the 16–65 labor force age range, which excludes retirees, there are about 55 million chronically unemployed who might want a job. It's hard to whittle this number down much further. For example, the number two cause cited for the plummeting LFP is "the decline in the participation rate of those 16–24 years old." In other words, 16–24 year old Americans can't find jobs. They, along with many millions of others in this 55 million subset, are in the same boat as the 121 million with dead-end jobs — the underclass.

And it is growing fast. A recent Federal Reserve Bank study of eight major industrialized economies found that only the US has experienced a decline in LFP. Between 1997 and 2013, US LFP has decreased 4.6%, while Canada, France, Germany, Japan, Spain, Sweden and the United Kingdom experienced increases. Then there is the so-called "Great Decoupling." Beginning around the turn of the century, employment gains, which have historically followed productivity gains, ceased. Job growth and wage increases have become decoupled from the economic progress produced by technological advance. While productivity increased linearly, employment remained flat through the Bush presidency, declining thereafter. Of today's 93 million work force nonparticipants, more than 13 million (3% of the 4.6% decline since 1997) have dropped out since President Obama took office.

Automation played a significant role in this exodus to the underclass, and will only augment its future contribution. Many companies have not rehired the people they laid off during the recession. Instead, they have adopted new technologies — hastening the return to pre-recession profits, at a lower cost — that automate tasks previously performed by humans, including high-skill, middle-class humans.

Automation is no longer confined to tedious, repetitive tasks. Jobs in services, sales, and construction, even jobs in management, science and engineering, and the arts will be vulnerable to takeover by machines. So says an Oxford University study, which concluded that 47% of US jobs are likely to be replaced by computerized machines. And a technology research firm, Gartner, forecasts that smart robots will replace one of every three jobs by 2025. As these jobs vanish, our already enormous labor surplus will grow ever larger, depressing wage rates still more.

Obama's policies have created a record-breaking number of shitty jobs, which he brags about, and now promises to make less shitty.

Yet, as if existing wages were not low enough, we add one million new legal immigrants annually. Politicians, Democrat, Republican, and libertarian alike, tell us that we need them: they start new businesses, they invent things, they help support our aging population. In 1970, with a population of about 200 million and 53% of all households in the middle class, Americans competently started new businesses, invented things (almost everything that mattered), and took care of the elderly. Economic prosperity was achieved through productivity increase, not population growth. Today, with a population of about 320 million, the middle class has shrunk to only 43% (along with its wages and net worth), and we struggle in an economic mire. It seems likely that, with more people (438 million by 2050, under our current immigration policy), the underclass will continue its relentless growth.

Meanwhile, there is no serious attempt by our political elite to help create good jobs — middle class, "breadwinner" jobs that can support a family and reanimate the American Dream. The Obama administration, apparently fooled (monthly) by the declining unemployment rate, is encouraged by an economy that systemically produces low-wage jobs, as long as the number is large enough to flaunt. Mr. Obama regularly brags about record-setting job growth, 12 million at his latest count, asserting that "the economy is headed in the right direction."

It is not. By instilling fear and confusion in American business, recent tax and regulatory policies (including immigration policies) are the chief contributors to underclass expansion. For example, there is a growing preference for companies to employ temporary workers instead of permanent ones. The use of employment services, observed Mr. Whitehouse, is "a practice that makes firing easier and reflects their caution about the economic outlook." Ironically, computer and management consultants, one of the few labor categories to have experienced job growth during the so-called recovery, consist of "people who help businesses figure out how to make do with fewer workers."

Capitalists believe that the way to reverse the trend is simply to reduce the taxes and regulations that have made businesses afraid to spend. Companies, then in possession of more capital and the freedom to invest it, would purchase new plant and equipment, create new products and services, develop new markets, etc., requiring better jobs and more workers to support the expanding operations. And with the increased demand for labor, wage rates would rise.

President Obama has different ideas. He is content with his Burger Flipper economy. Unlike his Green Economy, which briefly created a paltry number of green jobs, the Burger Flipper economy produces enough low-wage jobs each month (now 61 consecutive months) for him to gloat (now, it seems, 60 consecutive months). He apparently believes that this stream of lousy jobs will continue in sufficient quantity to accommodate the five million illegal immigrants that he wants to add to our existing labor surplus.

It is only the very wealthy who prosper, with the top 1% having reaped an astounding 95% of all of the nation's net income gains since Obama took office.

Hillary Clinton, likely our next president, is dismayed by his restraint. She "advocates expanding Obama's executive actions to allow millions or more undocumented immigrants to obtain legal protection and work permits." And if that does not expand the labor surplus enough, Clinton has said that she will "welcome back people who have already been deported."

With the labor surplus driving wage decline and "fast food" driving job growth, Obama has accordingly shifted his policies to help the burgeoning underclass. As Lowrey noted,

The swelling of the low-wage work force has led to a push for policies to raise the living standards of the poor, including through job training, expansion of health care coverage and a higher minimum wage.

Obama's new plan is to improve the quality of the lousy jobs that his old plan created.

Will it work? Those without a job will get no raise. That number, now at 93 million, will increase as businesses encounter the artificially increased labor costs. Those who have a qualifying job will be happy, at first — until they discover that (A) everything they buy will cost more, (B) they will pay more in taxes and receive less in benefits, and (C) at $10.10 an hour, they will still belong to the underclass.

To date, Obama's policies have been largely aspirational, and, for existing American citizens, lamentable. According to the BLS, only 6 million net jobs (not 12 million) have been created under his stewardship. And, according to a Center For Immigration Studies report, all of them have gone to immigrants (legal and illegal). "The number of immigrants working returned to pre-recession levels by the middle of 2012, and has continued to climb. But the number of natives working remains almost 1.5 million below the November 2007 level."

Given the immensity of the underclass, the thinking at the White House might be that Obama's plan will yield more bang for the buck than a plan, say, to help create high-paying jobs. Besides, they already think that the economy is headed in the right direction and expect that, in the burger flipper economy that their old plan created, nothing could possibly go wrong with a new plan designed to lift the wages of burger flippers.

Enter the Burger Robot, the fast food industry's answer to rising labor costs. The Burger Robot can make 360 sandwiches per hour (including gourmet sandwiches); it reduces liability, management duties, and food preparation footprint; it pays for itself in about one year (even at the existing minimum wage); and it doesn't need a hairnet. The machine is not designed to improve the efficiency of fast food workers; rather, says company cofounder, Alexandros Vardakostas, “It’s meant to completely obviate them.”

The rise of the underclass is a glowing symptom of our decline. Today's politicians are singularly incapable of fulfilling their economic promises. Their glib, clumsy, overbearing laws and regulations have forged a pathetic burger-flipper economy offering little more than peonage and destitution to the majority of its labor force. After more than six years of feckless meddling, Obama's policies have created a record-breaking number of shitty jobs, which he brags about, and now promises to make less shitty. After more than six years of Obama's promises to help the poor and the middle class, it is only the very wealthy who prosper, with the top 1% having reaped an astounding 95% of all of the nation's net income gains since he took office. For everyone else, there is stagnation and decline — unless you are an immigrant or a robot.

About this AuthorSteve Murphy is a retired missile defense systems engineer and software developer living on top of Green Mountain in Huntsville AL, where he does a little consulting, plays the stock market and writes — mostly about economics, science, and American life. He can be contacted at sfm@hiwaay.net.

Comments

Visitor

If the five quintiles contain 91.2, 29.8, 19.1, 11.7, and 4.0 million workers, then they don't seem to be quintiles.

Thu, 2015-07-30 13:35

Visitor

The quintiles are not fifths of the population, but fifths of the total earnings. Multiply your numbers of the workers in each quintile by the average income of that quintile and you get 5 numbers, all about $1.34 trillion.
E.g. 9.12 million people times $14600 per person = $1.33 trillion. 4 million people times $335000 per person = 1.34 $trillion.